Airline merger lawsuits may not help consumers

For more than a century, it has been the public policy of the United States to stop corporate mergers and acquisitions that pose a threat to the competitive nature of the free market.

The conventional wisdom has been that the merger of industry leaders results in less competition, higher prices and less accountability to the American consumer. Therefore, from the trust busting days of Teddy Roosevelt (who famously broke up the railroad monopoly held by J. P. Morgan) to the breakup of AT&T in the 1980's, the American people have made it clear that anti-competitive monopolies will not be tolerated.

Against this backdrop, American Airlines and US Airways recently proposed an $11 billion merger that would make them the exclusive major carrier at seven non-stop routes and the leading carrier at several major airports. The proposed merger would help the airlines stay financially solvent in a historically difficult industry. But, according to the Department of Justice, it would do so at the expense of tens of millions of passengers who might be negatively affected. As a result, the Department of Justice and six state attorney generals filed suit in federal district court to block the merger.

The Department of Justice claims that the proposed merger would create the world's largest airline, which would substantially reduce competition in the industry. The DOJ also claims that the two airlines are currently the only major competing airlines on more than one thousand routes and that by eliminating this competition, fares on these routes will likely increase.

The airlines' attorneys point out that the merger provides substantial benefits to employees and shareholders, as well as the combined company's customer base. They also note that with other major airlines allowed to merge in recent years, this is as much a marriage of necessity as anything else (a point that seems to be validated by the fact that American Airlines is currently in bankruptcy).

Therefore, the airlines claim this merger would actually increase -- or at least help to maintain -- competition by ensuring that all of the major carriers remain financially viable entities.

At the end of the day, it is impossible to predict whether this particular merger will benefit or harm consumers on issues of airfares, fees, route availability and general customer service. Likewise, it is impossible to predict whether the DOJ suit will be successful (several antitrust experts have opined that it is a weak case and pointed out that the government is rarely successful when bringing these cases to trial). That said, we can predict with virtual certainty that, whatever the outcome, this will be a long and drawn out process with the American consumer caught in the middle.